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Soft new home sales highlight RBA fears

The Housing Industry Association has reported that new home sales rose by 0.5 per cent in June. 
While detached home sales were up 18 per cent over the past six months, apartment sales were down by 20 per cent. The lack of investor/developer interest highlights Reserve Bank concerns that supply is still responding sluggishly to increased demand.
What does it mean? 
The latest new home sales data is timely, reinforcing Reserve Bank concerns that lower interest rates are serving to push up prices rather than boost demand. While more first home buyers are building their dream homes, investors and developers are either not interested or not able to participate in building new apartments. 
While the Reserve Bank Governor hasn’t fleshed out his fears on the housing market, its likely that some of the concern relates to lending practices of financial institutions as well as barriers created by state and territory governments. The global financial crisis has made lenders more wary about supporting housing development propositions. At the same time, developers complain about the lack of available land, zoning restrictions and cost recovery practices by state governments.
With Australia’s population growing at the fastest rate in almost 40 years, building of detached homes is simply not enough – a significant lift in apartment building is required to meet the country’s housing needs. 
Governments, central banks, developers and lenders must come together to address the continual shortage of homes in Australia. As the Reserve Bank Governor warns, unless supply is responsive, low interest rates will merely serve to boost home prices, worsening affordability and setting up new problems for the economy.

What do the figures show?

New home sales rose by 0.5 per cent in June. While the result is slightly above the average result for the past three years, it remains around 5 per cent lower than the five-year average.
For the first six months of the year home sales are down around 4 per cent on a year ago but up 13 per cent on the lows recorded over the last six months of 2008. 
Detached home sales showed the strongest gains in June. The HIA reported that detached home sales rose by 24.2 per cent in South Australia, 8.0 per cent in Western Australia and 1.2 per cent in Victoria.
But sales fell 4.2 per cent in NSW and 9.9 per cent in Queensland.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, July 30, 2009

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